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12. Lauren Turk is reviewing Francesca Toy ’ s financial statements in order to estimate its sus-… 1 answer below » 12. Lauren Turk is reviewing Francesca Toy’s financial statements in order to estimate its sus- tainable growth rate. Using the information presented in Exhibit 14.25: a. (1) identify and calculate the three components of the DuPont formula. (2) calculate the ROE for 2011, using the three components of the DuPont formula. (3) calculate the sustainable-growth rate for 2011. b. Turk has calculated actual and sustainable growth for each of the past four years and finds in each year View complete question » 12. Lauren Turk is reviewing Francesca Toy’s financial statements in order to estimate its sus- tainable growth rate. Using the information presented in Exhibit 14.25: a. (1) identify and calculate the three components of the DuPont formula. (2) calculate the ROE for 2011, using the three components of the DuPont formula. (3) calculate the sustainable-growth rate for 2011. b. Turk has calculated actual and sustainable growth for each of the past four years and finds in each year that its calculated sustainable-growth rate substantially exceeds its actual growth rate. Cite two courses of action (other than ignoring the problem) that Turk should encourage Francesca Toy to take, assuming the calculated sustainable- growth rate continues to exceed the actual growth rate. Exhibit 14 .25 Francesca Toy, Inc.: Actual 2010 and Estimated 2011 Financial Statements for Fiscal Year Ending December 31 ($ Millions, except Per-Share Data) 2010 2011e Change (%) Income Statement Revenue $4,750 $5,140 7.6 Cost of goods sold $2,400 $2,540 Selling, general, and administrative 1,400 1,550 Depreciation 180 210 Goodwill amortization 10 10 Operating income $ 760 $ 830 8.4 Interest expense 20 25 Income before taxes $ 740 $ 805 Income taxes 265 295 Net income $ 475 $ 510 Earnings per share $ 1.79 $ 1.96 8.6 Average shares outstanding (millions) 265 260 Balance Sheet Cash $ 400 $ 400 Accounts receivable $ 680 $ 700 Inventories $ 570 $ 600 Net property, plant, and equipment $ 800 $ 870 Intangibles $ 500 $ 530 Total assets $2,950 $3,100 Current liabilities $ 550 $ 600 Long-term debt $ 300 $ 300 Total liabilities $ 850 $ 900 Stockholders’ equity $2,100 $2,200 Total liabilities and equity $2,950 $3,100 Book value per share $ 7.92 $ 8.46 Annual dividend per share $ 0.55 $ 0.60 View less » Dec 29 2015 10:57 AM
